Memeorandum

January 06, 2013

Social Security Crisis Arrives At The NY Times

The NY Times Sunday Review features an extraordinary data-dive into the workings of the Social Security Trust Fund life-span estimation process. Their conclusion - the Social Security actuaries are using outmoded techniques; contemporary analytical tools suggest that Americans will live longer and deplete the (notional) Social Security Trust Fund faster than currently forecast. Properly adjusted forecasts would show Social Security spending an additional $800 billion (cumulatively) by 2031, which is roughly $40 billion per year.

And the authors discover a real howler - apparently the Mayans have found a toehold in the Social Security office:

So fifteen years from now everyone aged 55-59 will die? This has to be a blow to current 40-44 year olds. Geez, all those folks walking around reassuring themselves that life begins at 40 now find it will end in the late 50's. I'd say don't blame me, I voted for Romney, but I am sure this is a bipartisan methodlogical whoopsie.

The full research is here and I haven't delved into that cause of death yet. But this is their key conclusion from the Times:

For the first time in more than a quarter-century, Social Security ran a
deficit in 2010: It spent $49 billion dollars more in benefits than it
received in revenues, and drew from its trust funds to cover the
shortfall. Those funds [an accounting reality but economicfiction]— a $2.7 trillion buffer built in anticipation of
retiring baby boomers — will be exhausted by 2033, the government
currently projects.

Those facts are widely known. What’s not is that the Social Security
Administration underestimates how long Americans will live and how much
the trust funds will need to pay out — to the tune of $800 billion by
2031, more than the current annual defense budget — and that the trust
funds will run out, if nothing is done, two years earlier than the
government has predicted.

So over the next twenty years Social Security forecasts are short by (very roughly) $40 billion per year. OK, that is not a trivial number even by contemporary budgeting standards in Washington.

This totally conflicts with the liberal progressive catechism of Social Security Denialism but I am sure the reality-based community will embrace this new reality.

ANOTHER QUESTION I CAN'T ANSWER: The authors show their revised life expectancies for different age cohorts as of 2030. One of the cohorts is the 55-59 year old group. But didn't a lot of that group die in 2028?

Obviously, if all the 55-59 year old die in 2028 there will still be some people around to populate the 55-59 year old group two years later (namely the folks who were 53 or 54 in 2028). Still one wonders how the actuaries could overlook that sort of a gap, where a particular age range is just gone.

Comments

Those funds — a $2.7 trillion buffer built in anticipation of retiring baby boomers — will be exhausted by 2033, the government currently projects.

A more open assessment would look something like this:

Those funds — a $2.7 trillion buffer built in anticipation of retiring baby boomers — were spent on pet projects by shortsighted politicians and replaced by IOUs. Hence future taxpayers will have to make up that amount as well as the other obligations in the program.

And even FactCheck won't support the various Democrats (esp. Harry Reid and Richard Durbin) who continue to lie about it.

This, Matt Taibbi's article on what a crony deal the bank bailout was that is in the current Rolling Stone---
almost makes you think these folks deliberately held these back until after the election---

At first Social Security revenue exceeded taxes, but now most of each year's cost of Social Security is covered by Social Security taxes paid during that year, and the remainder is covered by the redemption of bonds held by the feds in exchange for taxes from general revenue, but if the feds run low on bonds, they'll have to make up the shortfall with some other taxes.

So originally Social Security was paid for with taxes, but right now it's paid for with taxes and taxes, but at some point in the future it will require taxes, taxes, and taxes.

Brilliant, bgates. But there has got to be some way to work in the other side. Maybe something along the lines of:

So originally Social Security was paid for with taxes, while the rest of the government was paid for with taxes, taxes and taxes. But right now it's paid for with taxes and taxes, while the rest of the government is paid for with taxes and taxes. But at some point in the future it will require taxes, taxes, and taxes, while the rest of the government is paid for with rainbow gold and unicorn horn.

I want the Colts not the Ravens. Go Oliver Luck. Luck is the player we in Cleveland should have gotten in the draft. However a team that has won the SuperBowl to Cleveland's never won it got the first draft pick. We got another retread Weedon and the rest as they say is history. We in Cleveland win just enough games to miss the 1st draft pick. I believe we are one of the only teams without a consistent quarterback since 1999.
Please one of you other teams allow us to pick up a decent quarterback. We got one and then never used him. Even our back-ups are useless. We didn't try for Peyton, Tebow or Vick. We are our own worst enemy.

Oliver Luck was drafted in 1982 by the Houston Oilers so I hope that you will appreciate that even though he is a Cleveland native, 52 year old QBs just are not as good as 30 year old QBs which I believe is Brandon Weeden's age.

Indeed, Colt QB Andrew Luck, Oliver's son, was available in Round One of the 2012 draft but the Browns won too many games in 2011.

The SocSec trust fund is a claim on general tax revenue. The higher OASI taxes (FICA) paid since 1983 did two things: (1) ensure that OASI tax revenue at least matched OASI payments to beneficiaries, and (2) shift part of the future OASI payments to general tax revenue (i.e., the income tax) rather than leaving it all on FICA taxes.

The first thing was needed back then, because OASI payments to beneficiaries had already grown so much that FICA revenue couldn't pay the benefits to beneficiaries back then. So, the FICA tax rate was increased back in the early 1980s to eliminate the gap at the time.

The second thing done by raising the FICA tax was to handle the future gap for baby boomers. Knowing that the baby boomers would be receiving SocSec payments in the future that couldn't be matched by FICA revenue without a bigger hike in the FICA tax rate, the SocSec reformers of the early 1980s put that future extra burden onto the income tax revenues.

The gap between current FICA tax revenue and OASI payments would be filled from general tax revenue (or more borrowing, if there isn't enough income tax revenue to fill the gap) as the trust fund "IOUs" were redeemed.